These stocks are trading below 2008 lows. Should you buy?

We have short-listed the BSE 500 stocks that are trading below the 2008-9 lows, but don’t rush to invest in them.

The infrastructure segment—including power and construction—dominates the list of low-priced stocks.

Market corrections bring in several opportunities for investors, and the recent correction is no different. While the benchmark indices—Sensex and Nifty—are down by about 10% from their recent peaks, some stocks have seen a much sharper fall. In fact, several stocks are trading below the 2008-09 global financial crisis-driven lows, even as the broader market is up 300%. We have short-listed the BSE 500 stocks that are trading below the 2008-9 lows, but don’t rush to invest in them. Not all low-priced stocks hold value.

Infra segmentThe infrastructure segment—including power and construction—dominates the list of low-priced stocks. “Most of these companies are down due to their specific problems. For example, Suzlon Energy has underperformed because its global acquisitions have gone sour,” says R. Sreesankar, Head, Institutional Equities, Prabhudas Lilladher.

Experts say that the problems of the power sector will continue for some more time. “Power sector is a no go now because power generators are facing multiple challenges and the low plant load factor (PLF) of around 60% shows the sector’s weakness,” says Vinay Khattar, Senior VP and Head, Research, Edelweiss. Besides problem riddled power purchase agreements (PPA), some of the power generators are also down due to their high debt.

However, picking fundamentally strong power equipment manufacturers, such as Bhel—in our list of low-priced stocks because of the problems of the power generation sector—may be a good option. Companies such as Bhel will benefit when demand picks up and the green shoots are already visible. “Since Bhel’s capacity utilisation is below 50% and fixed cost is at Rs 9,000 crore, operating leverage will kick in when it gets more orders,” says a recent Axis Capital report. However, investors getting into counters like Bhel will need to stay invested for the long term. “Currently, the capex cycle is largely driven by government orders which focus on select areas— roads, railways, etc.—and the broader revival in capex (with the participation from private sector also) is expected only by the fourth quarter of 2018-19,” says Khattar.
Public sector banksExperts are not bullish on this segment, which has several low-priced stocks, because of its lower growth and piling bad debts. “Though the bad debt cycle may largely be behind us, it will be some time before this gets reflected in the segment’s financials. It will be better to wait,” says Khattar. Will this wait result in a loss of opportunity, if the sector turns around? Yes, but it is better to be safe than sorry, say experts. Lower operating efficiency—low return on assets—slower growth and continued loss of market share are other problems plaguing public sector banks (PSBs), and this trend may continue in the future as well. “It is a forgone conclusion that PSBs will continue to lose market share to private sector banks,” says Sreesankar.
Sugar“The sugar sector’s problem are a classic case of business cycle—sugar prices are down because of bumper production,” says Sreesankar. Since the sugar business cycle is short, sugar prices keep plummeting every 2-3 years. Both the sugar companies in our list have also underperformed due to their heavy debt. Just like Suzlon in the power sector, Shree Renuka Sugars got into trouble because of its Brazilian acquisition. The company recently informed stock exchanges that it will divest its Brazilian operations to bring down its debt.
Telecom & mediaThe war started by Reliance Jio is continuing and there is no chance of it ending soon. “Due to the ongoing price war, telecom woes will continue in 2018-19 as well,” says Sanjay Sinha, Founder, Citrus Advisors. Though Reliance Communication, part of low-priced stocks’ list, plans to sell its tower assets to Reliance Jio and earn around Rs 25,000 crore, it won’t be enough to pay off all of Reliance Communication’s debts. The company will have to off-load other assets, including real estate, to pay off its remaining debt. It’s best if investors do not get taken by its low price.